Jan 25 An Introduction To Blended Value

One of the best parts of TDi’s first few months was that I got to ask Bessi Graham and Paul Steele a lot of dumb questions.

I’d run my own business, invested in an early Impact Investment deal, advised for NFPs, worked in banking & finance, and studied social entrepreneurship as part of a business degree.Despite all of that, I was still an idiot when it came to actually understanding how impact investing worked.

I was still completely naïve about how business can make a positive difference, rather than continuing to create huge social problems.Most of us hear the same case studies (Grameen etc), without knowing how to actually create a business with social and financial returns.

For most business professionals over the age of 35, it’s a generally accepted fact that you can make money, or you can do good.Pick one.

We make ourselves a solid financial base during our careers, then “give back” in our retirement or through our philanthropy.There’s also a sense that the separation of these two parts of our lives should remain separate, and that one shouldn’t dirty the other.

Then came the idea of the socially motivated business.These were cases where a business would run as normal, use any means possible to make a profit, and then give that profit away.Certainly an improvement on straight commercial business, but these didn’t tend to scale.

An alternative that arose was a business that moderated itself, foregoing a good financial return in order to deliver social impact.It’s like building a business machine that works, then only running that machine 50% of the time.

What Bessi and Paul taught me was the concept of Blended Value, where an enterprise was designed so that it generated a strong financial return AND a good social return at the same time. One didn’t have to compromise the other, in fact one creates the other, and so on.

“But Isaac, aren’t all of those examples the same? They all do a bit of both!”No, Blended Value isn’t about some of each; it’s about having AS MUCH of each as possible.

I remember the moment it clicked for me:In the Industrial Revolution, humans leveraged the power of technology and machinery to become exponentially more productive and efficient, often at the expense of the worker, the environment and society.

We got good at designing effective systems and businesses that make money, but also crush anything that stands in their way.

Current thinking is about taking those types of organisations, and slowing them down so that they do less damage, or running them in a restricted way.

Blended Value is about taking everything we know about building businesses effectively, redirect them towards important social issues, then charging full speed ahead. No apologizing for making a profit, but ensuring that those profits fuel important work.

Just ensure that in the process we’ve managed to employ people who can’t otherwise get work, such as people with a disability or asylum seekers.

Build machines that create widgets at lightning speed in a cost effective way; but let’s use raw materials that are recycled or diverted away from landfill.Or maybe we build a great product that solves a social problem itself, like nutritional supplements or solar lights.

In these cases, let’s use every trick in the book around effective distribution, pricing and customer acquisition.None of the above should lead to an ethical compromise.

Instead of only doing good with your profits (the remainder at the end of the year), let’s do good with the operation of the business.Do good with your payroll, or through your suppliers.Use resources that don’t damage the planet, or sell products that don’t harm the customer.

These businesses are designed so that they create positive change even when they break even. Investment, when used well, can help these groups to scale up, making them more efficient or allowing them to reach new markets.

That’s when it clicked for me.With Blended Value, the investor enables the social enterprise to do great things.It’s win-win, when the enterprise does well, so does the investor, who took a risk.When times are rough, shareholders don’t make money, but the social impact rolls on.It’s incredibly fair, and is proving to be popular amongst the Impact Investing community.

What we need now are more examples, more stories to talk about.We can look at STREAT or Ethical Property Australia, but we need more cases, more industries that can demonstrate how this is possible.

Could this be you? What would it take for your organisation to do good while making money?